The city’s lawmakers have made a breakthrough by allowing tech companies registered in Shenzhen to introduce differential voting rights to their shareholders, according to rules on encouraging science innovation passed at a meeting of the Standing Committee of Shenzhen Municipal People’s Congress on Wednesday.
At present, most Chinese shareholding companies abide by the “one vote per share” mechanism, while the rules in Shenzhen give more protection to the founders of technology companies by allowing them to have more than one vote per share.
For most technology startups in Shenzhen, the founders, who own proprietary rights but limited registered capital, face risks of losing control of the company after rounds of fundraising.
In a company’s share structure, if Group B (the founders) has 10 votes per share while Group A has one vote per share, each share has the same economic value, but the controlling rights of each share for Group B are 10 times as strong as those for Group A.
The structure will protect the voting rights of original stockholders, preventing malicious acquisitions, attract global talent and resources, and encourage entrepreneurship, according to the rules.
As the first locally legislated rules that cover the whole ecological chain of scientific innovation, the regulations are also designed to protect innovations in science.
The rules encourage enterprises to get involved in research in basic sciences and applied sciences, and stipulate that no less than 30 percent of city-level project research funds should be used to fund basic sciences and applied sciences.
The expenses in such research will enjoy incentives and special treatment — the same as philanthropic donations. The inventors own at least 70 percent of the proprietary rights if they make such achievements by fully or mostly using fiscal funds.